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THE IMPACT OF E-COMMERCE ON TRANSPORT

E-commerce and Consequences for the Logistics Industry

Ola Hultkrantz

Kenth Lumsden

Department of Transportation and Logistics

Chalmers University of Technology

S-412 96 Gteborg, Sweden

fax: +46 31 772 13 37

e-mail: [email protected]

[email protected]

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E-commerce and Consequences for page 1 Hultkrantz and Lumsdenthe Logistics Industry

Table of Contents

ABSTRACT .............................................................................................................................................1

1 INTRODUCTION..............................................................................................................................1

1.1 Background............................................................... ................................................................ ................. 1

1.2 Scope....................................................... ............................................................. ....................................... 2

1.3 Research questions ............................................................ .................................................................. ...... 2

2 NEW FLOW STRUCTURES AS A CONSEQUENCE OF E-COMMERCE..................................... 2

2.1 Flow requirements.......... ................................................................... ........................................................ 2

2.2 Model for information in e-commerce........................................................... .......................................... 4

2.3 The supply chain flows .............................................................. ................................................................ 6

3 DISTRIBUTION DEVELOPMENT WITHIN E-COMMERCE............................................................7

3.1 Conventional distribution ........................................................... .............................................................. 7

3.2 Distribution structures for Internet buying .................................................... ........................................ 7

3.3 Distribution Channels ............................................................. ............................................................ ...... 7

3.4 Upstream and downstream consequences ..................................................................... .......................... 8

3.5 Delivery parameters .................................................................. ................................................................ 9

3.6 Logistics systems changeability............................................................. ................................................ 10

3.7 Analysis of distribution development within e-commerce ........................................................... ........ 10

4 SUSTAINABLE DEVELOPMENT..................................................................................................11

4.1 Requirement of a sustainable society............................................................... ...................................... 124.2 Perspectives of e-commerce ................................................................. ................................................... 13

5 SUMMARY .....................................................................................................................................14

6 REFERENCES...............................................................................................................................15

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ABSTRACT

The aim of this paper is the logistics consequences of the development of E-commerce concerning physicalproducts. The consequences will be analysed with a Supply Chain view and the perspective from the transportand logistic providers.

An e-commerce model is created by a number of different logistic forces. The model has emerged out of thecompetitive forces model by Porter. This e-commerce model is demonstrated by a number of examples. Here themodel is used to indicate the way the logistics industry will be positioned in the future. A number of case studieshave been performed. To analyse the case studies the model is used. The model shows distinctly the way the fivecompetitive forces influences the e-commerce companies as well as the logistics industry. This facilitates for thelogistics industry to take a larger part of the value chain.

The focus is directed towards the design and the management of different concepts for the physical distribution.The interrelation between these concepts and the flow structure and the information systems along the SupplyChain are to be defined. Models for Internet distribution, as well as for upstream and downstream consequences

for Internet buying will shown.Key words: e-logistics, e-commerce, e-business, logistics, supply chain management and distribution

1 Introduction

1.1 Background

Interest in the Internet has changed so drastically in recent years that one can speak of a universal breakthrough.The remarkable increase in users can be attributed mainly to the appeal of the World Wide Web, the Internetfeature that is enjoying the greatest growth (Bergendahl et al., 1998). There is some uncertainty about how muchthe Internet and electronic commerce (e-commerce) are being used, and especially about the expansion of suchusage in the future. At the same time, e-commerce is a new phenomenon that is surely going to have anenormous impact and significantly change the way both individuals and companies shop, manage their businessactivities and distribute their products.

The number of households in Europe connected to the Internet is expected to triple, to 50 million, by the year2004 (Erlandsson and Linden, 1999). But usage will not expand uniformly. Persistent forecasts of explosiveincreases in sales of goods via the Internet have so far been wrong. In Sweden, The Swedish Research Instituteof Trade (HUI), recently assessed retail sales via the Internet to be SEK 600 million, which corresponds to atrifling 0.2% of total retail turnover, (Karp, 1999). Increased access to Internet services must be accommodatedby improvements in flow structures. The increased access to and offers of information created by the Internetmust consequently be accompanied by a different distribution structure, one assuring that goods can evenphysically be transported to the customer quickly and rationally.

E-commerce will open an entirely new market for actors in the logistics field. Logistics and distribution systems

that function efficiently and effectively in all respects will be crucial for the success of the companies involved.This implies that manufacturing companies, and especially logistics companies, must identify and createeffective logistics solutions in order to compete on the marketplace.

Ordering materials of various kinds electronically, and primarily via the Internet, will become more and morecommon. This applies not only to business-to-business but also to business-to-customer. This end consumer willnormally be a private person who orders everything from books, clothes and food to a new model computer. Theresult is that the end consumer can receive and will demand to receivethe goods ordered significantly faster thanvia traditional distribution. The subsequent result will be shorter lead times, the disappearance of one or morephysical intermediaries, and direct transports to far more addresses, especially in those cases where retail storesare circumvented. We can anticipate less use of private cars, but more employment of delivery vans, as well assmaller orders to be shipped longer distances, especially in the international context.

During the preliminary phase, we might expect these consequences to imply greater direct costs, while the

consumers indirect costs for seeking, ordering and having their purchases deliver to their homes will go down.Simultaneously, however, we will see new opportunities for creating entirely new distribution systems involvingdifferent flow streams than those with which we are familiar. The companies who can cope with these demands

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with new approaches to production and distribution will be able to create new business opportunities and preparefor a greatly increased market for their products.

The Internet signifies new opportunities for reaching the global market. Yet this, in turn, also signifies great

demands on the actors who want to exploit these opportunities. Right now, there are several big actors whomarket themselves solely via the Internet (e.g. the booksellers Amazon.com and bokus.se), yet there are very fewwho do this profitably. Making it possible to use the Internet as a marketing channel requires new knowledgeabout how the entire logistics system needs to be developed in various environments and about theconsequences this will imply for other actors.

1.2 Scope

The focus of the project was designed as follows.

The unit of analysis is firstly the transportation and logistics industry.

The area studied is the physical distribution along the supply chain and the supporting information flow.

The project covers both business-to-business and business-to-consumer e-commerce, but with a focus on

business-to-consumer.

Both e-commerce in general and its logistics consequences will be covered, but with a focus on logisticsconsequences of e-commerce. Logistics consequences implies studying the demands on logistics forachieving profitable e-commerce in terms of logistics costs and delivery service, and the possibilities forchange and/or improved logistics operations.

The logistics focus is on the logistics platform in terms of design and management of the physicaldistribution structure in the supply chain: the different actors, such as producers, retailers, wholesalers,truckers, forwarders, customers, etc. The supporting information flow is also included.

1.3 Research questions

This paper has its basic foundation build in a number of questions. This were developed and further analysed

within a number of cases in cooperation with the industry (Hultkrantz and Lumsden, 2000, Erlandsson andLinden, 1999, Freij and Rosengren, 1999)

This questions and possible development are as follows:

1. What modes of distribution are interesting and what volumes and resources will be needed in order torationalize this commerce? How to organize and coordinate with existing flows while waiting for sufficientvolumes to motivate new, separate systems?

2. Will there be a demand for extended cooperation between different actors vertically as well as horizontally?How will this coordination be achieved? Is there a demand for incentive and control?

3. What role will different information systems play in these new, alternative logistics systems?

4. How will the increased cost downstreambe compensated with lower costs upstream?

5. How will the time differentiation be affected by the prospect of alternative distribution solutions?6. How will the distribution be allocated to a 24-hour period and how will this affect resource utilization?

2 New flow structures as a consequence of E-commerce

2.1 Flow requirements

Industry observers expect e-commerce volume to triple in two years, even though their current expectations vary.Business-to-business e-commerce revenues are currently a lot larger than those of business-to-consumer and areforecasted to stay so in the near future. The market for consumer e-commerce requires a major shift in consumerbuying patterns and a much larger penetration of the Internet in order to become really big (Cherrington &

Capoor, 1999).

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Some say the Internet will take over all commerce. That everybody will soon shop on the Web. Others say it isjust a fad, and that the Net cannot offer anything of lasting value (Dahln, 1997). It is recognized that the Internetoffers a lot of opportunities. But in order for it to become a large, global channel of sales, there are some growthrequirements that have to be fulfilled for e-commerce to truly take off, e.g.:

1. The basic infrastructure must be in place, including logistics.

2. Customers and businesses must have access to the Internet.

3. Sites must have multiple language functions.

4. The cost of Internet access must decrease.

5. E-commerce must be safe in terms of privacy and monetary transactions.

6. The speed of the technology must be satisfactory.

7. International standards must develop.

Interest in the Internet has increased dramatically during the last few years. The Internet is an abstract network(further explained in section 3.6 about Logistics systems changeability below) which means thatimplementation times are short and the developments around it are happening very fast. Consequently, Internet

use will shift from people with highly developed computer skills to ordinary people, which will result in newpossibilities for shopping over the net (e-commerce). This in turn will lead to new business opportunities for allsorts of companies. The products still need to be delivered to the customers however, and effective logistics anddistribution systems are hence essential for the success of new business.

Just as with every new phenomenon, the definition of e-commerce is still slightly vague and unclear. E-commerce is one part of e-business, which in turn can be described as the new business logic sanctioned byInternet technology. This new logic

spans entire value chains and creates new economic value,

breaks down borders and hence relationships,

impacts on large empires as well as new start-ups (Erlandsson & Lindn, 1999).

The differences between traditional business logic and the new e-business logic can be seen in Table 1 below.

One trend that can be seen throughout the new logic is that it is focused on building a network consisting ofsuppliers, manufacturers, and customers. Customers can participate in product development by surveys on theInternet, and are thereby, besides helping to develop the product, becoming more loyal customers. Suppliers areseen as partners participating in joint ventures with the company. Production is made to order instead of to stockso as to be more customer adapted. And customer service is becoming more and more important whencompanies are trying to create a loyal customer segment.

Table 1 Differences between the old and the new business logic (Erlandsson & Lindn, 1999)

Value chain Old logic New logic

Product development Technology driven Customer driven

Procurement Suppliers are suppliers Suppliers are partners

Production To stock To order

Marketing Market share Share of customer

Sales Traditional channels Over the web

Order fulfilment It comes when it comes Value added functionality over the web

After sales Customer service second priority Customer service is the key to survival

One definition of e-commerce might be "E-commerce includes everything from learning about products onlineand electronic transactions to online customer service and support, Kevin Koym, president of Praxsys SystemDevelopment (Erlandsson & Lindn, 1999).

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There are numbers of examples in which companies have begun to sell their products directly on the Internet as acomplement to the retailing line. Computer manufacturers, companies like Hewlett and Packard ( www.hp.se)and Compaq (www.compaq.se), have to meet the competition from Dell (www.dell.com), who started to sellcomputers over the Internet directly to their customers. In the future there will be opportunities for a wide range

of different companies to communicate directly to the consumers and to reduce the costs associated by sellingthrough a net of retailers.

Another example is where transport services are being purchased. Today the main part of all transportationassignments is purchased through haulage contractors like Schenker or Danzas. Internet opens up newpossibilities to get in contact with customers on the logistics area.

PotentialEntrants

Substitutes

Suppliers Buyers

Threats ofNew Entrants

Threat of SubstituteProducts or Services

Bargaining Powerof Suppliers

Bargaining Powerof Buyers

Producer Consumer

Logistics Company

Established brands

Rivalry AmongExisting Firms

Portal Competitors

Figure 1 Model for Information in e-commerce (adapted from Porter, 1980)

Buyers/ConsumersAt the same time as producers will take advantage of the possibilities of Internet consumers, the buyers, will usethis forum to negotiate prices and offerings. In the consumer line there are examples like Letsbuyit(www.letsbuyit.com) and different kinds of exchange services that bring together buyers/consumers andproducers and providers of different services.

One of the logistics providers that work in this way is Waytrack ( www.waytrack.com). Waytrack bring togethertruck owners and small hauliers with companies that require a transport or a need for a specific capacity by beinga forum for contact. Waytrack does not interfere with the logistics service. They offer a membership to theircustomers bringing them together into a site where companies that require transportation invite tenderers andtransportation companies to compete to get the assignment. In this way Waytrack is a connection betweensuppliers and buyers without being a part of the transportation process, after the negotiation is finished Waytrackhas no responsibility in the transportation process.

SubstitutesAs a consequence of a late refinement in the value chain new companies have become parts of the manufacturingprocess, doing simple configurations to make the products correspond to the customer demands. On example is

where IBM computers use a logistics provider, Schenker AG, to configure and install software on the computers.

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Here the logistics company in e-commerce that in itself is a substitute for traditional commerce takes overservices from traditional retailers such as providing the client and carrying out some service on the products.

In general there is a pattern that products are differentiated or consigned as late as possible in the supply chain.

This means that logistics companies which have access to terminals and cross-docking opportunities will be ableto take a larger part of the supply chain thus increase the potential profit margin

Today is there a battle between post offices, forwarders and integrators for global domination in the expandingexpress parcel market. Since a lot of the traditional freight companies are involved we can say that this is validfor the total freight market. Through acquisitions, deals, partnering etc. the companies try to get a completeEuropean network as a step towards achieving global coverage (Cronin, 2000). One thing that is behind thisnetwork war is that the transportation companies wants to get a larger share of the supply chain, value-addedlogistics (Peters and Jockel, 1998). The manufacturing companies try to postpone operations that make theirproduct unique for the customer. This operation can then be done by the logistics company.

2.3 The supply chain flows

"The supply chain is the network of organizations that are involved, through upstream and downstream linkages,

in the different processes and activities that produce value in the form of products and services in the hands ofthe ultimate consumers." (Christopher, 1992)

Foodprocessing

Agriculture Wholesaler Supermarket Consumer

Physical flow

Data flow

Figure 2. An example of a supply chain.

The above figure indicates two important flows that we would like to emphasize the data flow and thephysical flow. E-commerce will impact all elements in the supply chain, which rely on data flow to improveefficiency. Still, physical transportation is needed for most products, implying the usefulness of deriving e-commerce demands on logistics by analysing the logistics customers. Demands on a smooth integration of theseflows will increase in the future, from being a competitive advantage to a necessity. In internal logistics, within aplant, fixed installation or permanent information connections often provide physical links between the senderand the receiver, whereas in external logistics (between companies in the chain) there are only virtual (abstract)links between the nodes (Tilanus, 1997). Maintaining the relation between the information system and thephysical goods can sometimes be difficult. The shipment may be forwarded by various modalities and differentcompanies, consolidated with larger shipments or broken down into smaller ones. The information is often sentby a number of different means mail, phone, fax, EDI or physically attached to the shipment. Since global

trade is increasing, the physical flows will probably become even more complex in the future. This will increasenot only the importance of the logistics service provider as an integrator between players in the chain, but alsothe demand on his or her role as a coordinator of information flow and physical flow.

EDI has been available to business since the 1980s as an international standard for data communications.However, to set up corporate networks and establish electronic ties with trade partners using the EDI standardrequires costly private data networks and customized software, which makes EDI available only to an elite groupof big companies. Therefore, EDI could not satisfy mass demand for integrated information systems, as it is tooexpensive and too rigid in structure. EDI has remained the province of large companies and their captivesuppliers, used only by a small percentage of companies, e.g. 5% in the USA (Lohr, 1997).

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3 Distribution development within e-commerce

3.1 Conventional distribution

In conventional international distribution, goods pass through several nodes, or stops, before reaching thecustomer, see Figure 3. After production, and possibly storage at the factory, the goods are delivered to thenational distribution center (DC). Here they are stored, consolidated and reloaded, and then sent on to the nextstop, the local DC. The goods are handled in the same way as at the national DC, and are thereafter sent on to theretailer, where they are sold to the customer. Since most of the time that goods spend at nodes does not addvalue, the more nodes there are in a distribution channel the less efficient it generally is (Lumsden, 1998).

Producer Distribution centers - DC Retailer Customer

National Local

Customer Order Point (COP)

Customer

Figure 3. Conventional distribution structure.

The point where the goods change from being delivered to stock to being delivered to order is called thecustomer order point (COP). In conventional distribution, the COP is at the retailer, where the customers orderand buy the products. This is called a pushsystem since the company predicts the demand and the goods arepushed through the distribution channel (Coyle et al., 1996).

With e-commerce there are several possibilities for new ways of distributing goods, and presumably there will bedifferent ways of distribution for different types of goods. Time will be of great importance when deciding on

what type of distribution model to use. The faster and more direct flow of information on the Internet will makeit possible to skip one or more nodes in the distribution channel and thereby increase delivery speed. Forexample, in the future products might be delivered to the customer directly from the producer or from a nationaldistribution warehouse. One likely scenario is that customers will have the possibility to choose how quicklythey want their products delivered. The more the customers are willing to pay, the faster they can receive theirproducts, and the distribution models will then be different according to the lead time allowed.

3.2 Distribution structures for Internet buying

Along with the entry and expansion of e-commerce, it will be possible and necessary to make large changes incompanies distribution processes. This is because the COP will be moved upstream in the distribution channel,in some cases all the way up to the producing company. Consequently, the distribution process can be simplifiedto consist only of direct distribution from the producing company to the customer.

Several different distribution channels can be seen as possible future solutions, see Figure 4. The base alternativeis the conventional distribution, which is described earlier in the section about conventional distribution. Anexample from the food industry could be that the food producer is located in France, from where the groceriesare shipped in full truckloads or trains to a national distribution center (DC) located somewhere in southernSweden or in Denmark, e.g. Dancargos national warehouse at Arendal, Denmark. In the DC the groceries arestored, reloaded and consolidated with other products and later shipped on to a local DC in full truckloads. ThisDC can for example be ICA Vst, located in Kunglv, Sweden. At ICA Vst the goods are again stored, reloadedand consolidated and from here transported to the retailer ICA Maxi by either full truckloads or less than fulltruckloads. Customers then purchase the groceries at ICA Maxi.

3.3 Distribution Channels

The first alternative for a simpler distribution system for e-commerce products is to remove the retailer anddistribute goods directly from local warehouses to customer. This is called home delivery, and an example of thissituation could be the purchasing of tulips over the Internet. The tulips are grown in the Netherlands and areshipped to a national DC in Sweden in refrigerated trucks, since the goods are perishable. In this warehouse the

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tulips are consolidated into smaller consignments and then transported to the retailers, for example an Interflorastore. The customer now places an order at the Interflora store over the Internet, and the florist arranges thebouquet. The flowers are then distributed to the customers, either in Interfloras own vehicles or in a couriersvan.

Customer

"Conventional distribution"

"Mailman""Postal service"

"Local distribution"

"National distribution" (eg BTL)

"Integrator" (eg DHL)

= Customer DistributionCustomer Distribution expanding

Upstream and Downstream

Reduction in

Time To Customer (TTC)

Figure 4. Distribution processes for Internet buying.

Another possible alternative is to remove the local warehouse from the distribution channel and use the postalservice to distribute the goods from the national warehouse to the customer. This is called mail-order shoppingand works as follows. Using an example from the clothing trade, clothes are manufactured in Asia andtransported to a national DC in Bors in Sweden. The customer places an order over the Internet to the mail-order company, and the clothes are packed in parcels. These parcels are then distributed to the local post officeby the national postal service, and are finally delivered to the customer by the mailman.

A third alternative is to distribute goods from the national distribution centers to the customers. A good examplehere is Tamros distribution of incontinence protection articles for elderly people. The products are produced in

Germany and transported to Tamros national DC in Bckebol, Gteborg. There they are stored and packed, andfinally distributed directly to the customers by Schenker-BTL.

The last alternative is to have direct distribution from the producing company to the final customer. This could,for example, be the distribution of tailor-made clothes by the company Tailoronline. The customers state theirmeasurements and place an order over the Internet. The order is then sent to the factory in Estonia where thegarments are produced and packed in parcels. The finished products are distributed to the customer by mail.Another example is Bokus.coms selling and distribution of books, which go directly from the printing house tothe customer. Amazon.com is also a well-known company selling books via the Internet. They started theirbusiness with distribution directly from the printing house, but have had to switch logistics strategy to one inwhich they have to build warehouses in order to support the demand for shorter delivery time from the customersin the US (Hultn, 1999).

3.4 Upstream and downstream consequencesThere is little doubt that e-commerce will necessitate changes in the way products are distributed frommanufacturer to customer. What these changes will be is uncertain, but it is possible to distinguish the changes inupstream and downstreamconsequences, Figure 5. Consequences are said to be upstream when they concernchanges in the distribution channel from the customer to the producer. The only thing that is sent in that directionis information, and upstream consequences therefore mainly arise from changes in the flow of information.

The main upstream consequence is that the customer order point (COP) will be moved upstream towards theproducer, and the system will therefore change toward a pull strategy. This will demand a more efficientinformation system, but will lead to reduced inventory levels and thereby reduced capital tie-up (Lumsden,1998).

The consequences that are said to be downstream are those that concern the actual distribution of the products tothe customers. The most clearly foreseeable outcome from widespread commerce over the Internet is thatconsignment sizes will be reduced. The reason for this is that the distribution channels will stretch all the way tothe final customer, and since private consumers do not need the same volumes as for example a retailer, the sizes

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will be smaller. Since the total consumption in society will remain the same, or probably even increase, thenumber of consignments and the number of delivery addresses will increase, and this in turn will lead to morecomplex distribution systems and more assignments for transportation and logistics companies (Lumsden, 1998).

Producer Distribution centers DC Retailer Customer

National Local

COPCOP COP COP

Any solution

"Upstream"

Downstream

Figure 5. Upstream and downstream consequences for Internet buying.

3.5 Delivery parameters

Point of deliveryIt is very interesting to know whether the customers have the same attitudes and expectations as the producersand distributors.

The results from the diagrams in Figure 6 below show that the drop- off point is still not a fully acceptedalternative. More than 60% are willing to pick up products at a post office, while no more than 30% are willingto do so at a drop-off point. This is interesting, since there is basically no difference between the twoalternatives; the post office is in fact a drop-off point for Postens customers. This is a clear advantage for PostenOn Line Center and a severe disadvantage for other distributors. For example, Privpak has been delivering mail-

order products to drop-off points for a long time, but still there is resistance to this alternative.

0

10

20

30

40

50

60

70

80

90

100

Drop off point Post office Home Work place

Yes

No

Maybe

Figure 6. Attitudes toward delivery to drop off points, post, home and workplace.

As could be expected, most consumers want their products delivered to their homes; 89% stated that this was agood alternative. The respondents are in other words prioritising the comfort of receiving the goods at their doorhigher than the freedom of picking the goods up whenever they want. The alternative of delivering to workplacesgot a very mixed result. Over 50% stated that they would like to have their products delivered to their workplace,while over 30% said that they would not. From this we can conclude that this alternative has the potential ofbeing a good way of delivering e-commerce goods, but that it needs to be more thoroughly investigated.

Time of deliveryThe time when people want their products to be delivered is an issue that has not changed particularly muchbetween our study and Bergendahl & Magnussons (1998); the most popular time window is still weekdaysbetween 6pm and 8pm. The results in Figure 7 show that most people are prepared to commit themselves tobeing home for a couple of hours during a weekday to receive their products.

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Time of delivery

0%

20%

40%

60%

80%

Weekd

ays0

6-08

Weekd

ays0

8-12

Weekd

ays1

2-16

Weekd

ays1

6-18

Weekd

ays1

8-20

Weekd

ays2

0-22

Satur

day

Sund

ay

Figure 7. When people want their products delivered.

3.6 Logistics systems changeability

Several different conditions affect the creation and alteration of a distribution network. There are the ideological,political or strategic aspects. There are the abstract network components such as information flow. There are thephysical network components such as mobile resources, and there is the physical network, or infrastructure.

When implementing changes in physical distribution, which will probably be necessary to maximize the benefitsof e-commerce, the time for changing the different aspects mentioned above will vary. The ideological changesare fairly quick and easy to implement; these are e.g. a politicians words and, as we all know, those can oftenchange from day to day. Changes in the infrastructure, on the other hand, take a lot of time and cost a lot ofmoney (Figure 8). This figure also shows that making changes in information systems, which is in a way what e-commerce is all about, is a fairly quick process. Since new types of infrastructure will probably be necessary tofully utilize the benefits created from e-commerce, it is a rather safe assumption that it will take some timebefore we will see the whole potential of e-commerce. The complexities and differences in these changes aresome of the factors that make it interesting and important to investigate how different actors will reshape their

networks to adapt to the new demands of e-commerce.

Implementation

time

Magnitude of change

(DD)Ideological

(Political network

concepts)

Information(Abstract network components)

Mobile resources

(Physical network components)

Infrastructure(Physical network)

Actors(Human Resource network components)

Figure 8. Logistics systems changeability.

3.7 Analysis of distribution development within e-commerce

In section 1.3, six research question where outlined. Below will follow a discussion that starts out from thesequestion.

1. What modes of distribution are interesting and what volumes and resources will be needed in order torationalize this commerce? How to organize and coordinate with existing flows while waiting for sufficient

volumes to motivate new, separate systems?

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Presumably the e-commerce must be of a certain extent within the distribution chain to be effective. Theresources meant to be part of the system must also be adapted to enable the organizing of extensive distributionroutes. There will, for instance, be a demand for vehicles which can distribute cold or frozen food together withpackages to refrigerating mail boxes in residential areas, i.e. carry out deliveries when the customer is not at

home and thereby decrease the resource utilization.

2. Will there be a demand for extended cooperation between different actors vertically as well as horizontally?How will this coordination be achieved? Is there a demand for incentive and control?

Taking full advantage of the potential offered by e-commerce will require that the actors in the supply chaincooperate to adjust the different subsystems in the chain. This applies to a vertical (along the refinement process)as well as a horizontal (between distribution spots near the customers) way. If, for instance, all shops were tosend their own delivery vans for home distribution, the environmental gain would be negligible as compared tothe customer taking his/her own car to the shop.

3. What role will different information systems play in these new, alternative logistics systems?

Since the number of end customers (addresses) will increase considerably, this will necessitate efficient goodscontrol, which in turn requires refined information systems for planning as well as execution and follow-up.Besides, the systems will be of vital importance when it comes to creating and maintaining customer relations.

4. How will the increased cost downstream be compensated with lower costs upstream?

Since the last link in the distribution chain from shop to end customer (downstream) in normal systems does notaffect the product, as the alternative cost (for the individual) is often considered low, the new logistics systemsfor e-commerce will experience a cost increase here. This rise will then require compensation in the form oflower product costs (upstream) towards the customer to make him/her, from a cost independence perspective,choose home distribution

5. How will the time differentiation be affected by the prospect of alternative distribution solutions?

Owing to the fact that the ordering via Internet and the deliveries may vary in time, different solutions fordistribution can be efficiently. This, of course, enables new forms of price differentiation.

6. How will the distribution be allocated to a 24-hour period and how will this affect resource utilization?

The great number of new addresses (end customers) will be an individual with other requests for delivery times,e.g. evenings and weekends, beyond what is normal in company relations. This might, in many cases, lead toimproved resource utilization with larger distribution coverage of rural areas. The environmental impact undersuch circumstances must be carefully analysed.

4 Sustainable development

In the transportation and logistics sector there are a number of general trends that can be observed. The trendsidentified in the transportation and logistics sector is of course closely linked to more general trends that can beidentified (TNO, 1999). These more general trends are listed below in no particular order, just to mention the

overall trends that can be identified throughout society. More power to the customer, which basically means that the customers demand more flexibility

regarding product supply, delivery both in terms of time and place as well as a trend towards morecustom made solutions in general.

Globalisation, which is one of the major trends the latest decennium creating large multinationalcompanies and this trend both allows and forces companies to target market segments on a worldwidebasis.

Consolidation, or spatial concentration, is both a trend within industries for companies to consolidatetheir position through buy-ups that is closely related to the globalisation trend. It is also a trend towardsconsolidation of product groups and the production, transport and storage of these products.

Deregulation of markets, for example the inner market of the EU that actually is a trend that is both a

prerequisite and enforces the globalisation and consolidation trends.

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Development of new technologiessuch as the Internet that allows for rationalisation and the creation ofmore custom made systems with retained efficiency and also allows for new business models, such asE-business.

The trend towards increased return on invested capital also creates new demands on especiallytransportation and logistics solutions in order to cut down on storage and other buffers in the systems.

The environment considerationsare also a major trend that affects the way companies do business andis the basic factor behind the strive towards a sustainable society which creates new demands on allindustry sectors.

These different trends both enforce the complexity of transportation and logistics systems as well as make themless complex. In fact, some of the trends are the effect of industry sectors trying to restructure their systems inorder to make them less complex and therefore easier to handle. The spatial concentration of inventory is atypical trend toward simplification of the network and process that is to be handled in order to fulfil the customerdemands and be as efficient as possible. The trend towards globalisations is something that enforces thecomplexity of transportation and logistics systems since the networks used and the processes created to handlethis global presence become larger and more complex and very hard to survey by the stakeholders involved.

4.1 Requirement of a sustainable society

The focus in this context is given in Figure 9. In the figure the original ideas of the two different approaches tohandle complexity in transportation and logistics systems are given. The basic assumption was, and still is, thatthere exists a trade off between a reductionistic approach and an integrated approach. In the context oftransportation and logistics this will mean a trade off between using an overcapacity of resources and the use ofmethods and strategies that uses information as the source to handle the complexity.

Transportation and logistics systems complexity

Reduction Integration

Overcapacity Frequency modulation

Number Of Terminal Systems(Hub And Spoke)

VerticalInformation

Real Time(Connections)

Memory

HorizontalInformation

Vehicles Units(Standardizing)

Slots

Trade Off

Requirement of a sustainable society

Figure 9 The requirement of a sustainable society regarding the trade offs on transportation and logisticssystems (Lumsden et al., 1998 and Waidringer, 2001).

The basic assumption of course being that by using a more sophisticated, integrated, approach it will be possibleto handle the larger and more demanding problems, that occurs due to an increasing consolidation andglobalisation of industry, in a more efficient way than is currently the practice. The upper level in Figure 9 is thestrategy level, where the basic decision is whether to choose to reduce the system or keep it integrated. Thetraditional approach has been to choose the approach where we reduce the system in order to try to make themeasier to handle. Methods and strategies to handle the problems arising in complex systems have not been readilyavailable why this strategy is the predominating in the transport and logistics industry today. The next level is the

tactical level showing the two dominating ways of creating simple enough systems to handle a complex demandor environment, surplus capacity or higher frequency (over transport), than necessary to accomplish the current

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volumes. The last level in this figure is the operational level that shows the practical solutions that are deployedin order to solve the problem, such as hub and spoke. The right hand side describes the other choice,sophisticated solutions to match the complex problem. In these strategies information and knowledge are themain sources to handle the complexity. In order to make the solutions sustainable for the future we believe that

we have to move the approach from the side were we reduce the systems in order to make them easier to copewith to the other side were we integrate them and use the information in order to control and manage them.

The requirements of the future will also be the requirements of a sustainable society and this demand for highersophistication is both economic in that industry and consumers demand faster and cheaper solutions with lessenvironmental impact. The demand for more sophisticated solutions to the transport of goods and persons alsorequires more sophisticated approaches, methods and models both to assess these systems properties and to beable to manage and control them in the most efficient way. This is the ultimate goal in using complexity to assessand model transportation and logistics systems (Waidringer, 2001).

4.2 Perspectives of e-commerce

Regarding e-commerce we can look at the figure out from two perspectives. The shippers and the forwardersperspectives. The shipper is more concerned about good valid and precise information about the cargo and theactual transport. The shipper is though not really interested in how the actual transport, capacity etc is solved, i.e.the shipper is not interested if we use a transport system with over capacity or a system that use over transport. Inthis way we can say that the shippers focus is the commerce in this case e-commerce. The forwarder is on theother hand more concerned over enough transport capacity and an easy to manage and redundant system(Hultkrantz, 1999).

INTERFACES (Node-Link)

REDUCTION INTEGRATION

SIMPLICITY COMPLEXITY

OVER CAPACITY OVER TRANSPORT

NUMBER OF TERMINAL SYSTEM(HUB AND SPOKE)

VERTICALINFORMATION

REAL TIME

(CONNECTIONSMEMORY

HORIZONTALINFORMATION

STRATEGY

TOOLS

SYSTEM

CONSE-

QUENCES

VEHICLES UNITS(STANDARDIZING)

S

HIP

P

E

R

FORWARDER

SLOTS

Figure 10 The two perspectives of e-commerce - Participant Focus (Lumsden et al., 1998).

Buyers want to know their landed cost of the products, when and were the products can be delivered, etc. Thisadditional information, the order management, the IT services on which these are based, and the Just-In-Timetransport and delivery are summarized by the term e-fulfilment. But e-fulfilment can and frequently does covermuch more: arranging for the insurances of goods in transit, export and import customs clearance etc. (Spectrum,2001). In the same way, as the shipper is interesting in the e-commerce the forwarders are interesting in the e-fulfilment. One problem the e-business has been struggling with is that these two perspectives havent mach eachother. The shippers havent understood the forwarders perspective and the forwarder havent understood theshippers perspective.

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5 Summary

Many argue that e-business will grow a lot in coming years. But in order for it to become a large, global channelof sales, there are some growth requirements that have to be fulfilled for e-commerce to truly take off, e.g.:

1. The basic infrastructure must be in place, including logistics.

2. Customers and businesses must have access to the Internet.

3. Sites must have multiple language functions.

4. The cost of Internet access must decrease.

5. E-commerce must be safe in terms of privacy and monetary transactions.

6. The speed of the technology must be satisfactory.

7. International standards must develop.

At present e-commerce is pursued to a fairly high degree between companies, but is still not very developedbetween companies and private persons. The business-to-consumer (B2C) relation is expected to grow rapidlythough, and when this happens it will result in several changes for actors in the logistics area. When delivering to

private persons instead of companies, the demand for fast and accurate deliveries will increase. This is becauseone or more of the physical nodes will disappear when the Customer Order point (COP) will be moved upwardsthe supply chain. Direct home deliveries will request shorter lead times, and more complex distribution systemswill be necessary to make this possible.

E-commerce will impact all elements in the supply chain, which rely on data flow to improve efficiency. Still,physical transportation is needed for most products, implying the usefulness of deriving e-commerce demands onlogistics by analysing the logistics customers. Demands on a smooth integration of these flows will increase inthe future, from being a competitive advantage to a necessity.

In the distribution chain we will see a number of new possibilities. There wont be one way to distribute e-commerce goods. In fact, even for one company, there will a number of ways. The distribution alternatives willbe different for different customers as well as for different categories of products. Which alternative thecompany (or actually the customer) will choose will be regarding to time limits and how much the customer

wants to pay for the service. This means that a company will use more than one sales channel for, a customer, ifthe customer buys different products with different demands regarding e.g. time as well as for different articles.

There is little doubt that e-commerce will necessitate changes in the way products are distributed frommanufacturer to customer. What these changes will be is uncertain, but it is possible to distinguish the changes inupstream and downstream consequences. The main upstream consequence is that the customer order point(COP) will be moved upstream towards the producer, and the system will therefore change toward a pullstrategy. This will demand a more efficient information system, but will lead to reduced inventory levels andthereby reduced capital tie-up. The consequences that are said to be downstream are those that concern the actualdistribution of the products to the customers. The most clearly foreseeable outcome is that consignment sizeswill be reduced., the number of consignments and the number of delivery addresses will increase, and this in turnwill lead to more complex distribution systems and more assignments for transportation and logistics companies

When implementing changes in physical distribution, which will probably be necessary to maximize the benefits

of e-commerce, the time for changing different aspects will vary. These aspects are e.g. ideological, information,actors, mobile resources and infrastructure. The complexities and differences in these changes are some of thefactors that make it interesting and important to investigate how different actors will reshape their networks toadapt to the new demands of e-commerce.

We can look at e-commerce from two perspectives, the shippers and the forwarders. The shipper is concernedabout good, valid and precise information about the cargo and the actual transport but not in how the actualtransport is solved e.g. regarding route, resource utilization etc. but on the other hand this is what the forwarderis interested in, in order to solve the transport as effective as possible. The forwarder is also responsible for the e-fulfilment which includes actives such as; additional information, the order management, the IT services onwhich these are based, the Just-In-Time transport and delivery, arranging for the insurances of goods in transit,export and import customs clearance etc. From this point of view we can say that the shipper is interesting in thee-commerce and the forwarders are interesting in the e-fulfilment. One problem the e-business has been

struggling with is that these two perspectives havent mach each other. The shippers havent understood theforwarders perspective and the forwarder havent understood the shippers perspective.

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E-commerce and Consequences for page 15 Hultkrantz and Lumsdenth L i ti I d t

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